Let assume that the average duration of the loans in a firm is 6.6 years. The average duration of its deposits is 3.4 years with k=L/A = 0.5 and total asset=$230 million. What is the gain (+) or loss (-) on the futures position (that hedges against the risk of the rise in interest rate) using T-Bonds (Duration = 9 years, $96 per $100 face value, minimum contract size = $100,000) if the shock to interest rates is 1.2 percent (decrease) while the current interest rate is 7.8%?

a.

-$12.55 million

b.

$11.92 million

c.

$12.55 million

d.

$11.29 million

e.

-$11.92 million